You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
why the hell futures lower then cash ???
- Thread starter thomfergu
- Start date
Show of hands...who here actually makes their daily bread on the difference between the Futs and Cash? Not as an Indicator to execute something else ...but those who execute Futs or Cash on the basis of relative misalignment?
Thank you.
Thank you.
Quote from ScottD:
That can be true on a brief transient basis, but itâs relatively quickly corrected by Arb Programs. Just because cash is higher than futures, does not mean that the outlook is less than rosy. It typically means that the dividends are higher than the cost of carry interest for the remainder of the contract.
The main reason an indexâs cash price can be higher than its futures price for the bulk of a trading day is that the fair value delta can be negative â i.e., a discount instead of a premium.
Futures price = cash price + fair value delta (where the delta can be negative)
Fair value delta = interest - dividends (where dividends can be greater than interest)
The interest is the carry cost for owning all the stocks from now until contract expiration. The appropriate short term rates from the yield curve are used, for example 3-month LIBOR. From the perspective of the futures contract holder, the interest is essentially gained because you donât have to borrow from your bank or broker to own all the securities.
The dividends are those that happen from now until contract expiration. From the perspective of the futures contract holder, the dividends are effectively lost because you own the futures contract instead of the securities.
The input values are adjusted proportionally for the remaining life of the 3-month contract.
Thanks for the clear, straight to the point explanation. Well done! More posters like you are needed to neutralize all the BS that is injected into this site on a daily basis.
Text book
Now can we make any money on this?
Now can we make any money on this?
Quote from ScottD:
That can be true on a brief transient basis, but itâs relatively quickly corrected by Arb Programs. Just because cash is higher than futures, does not mean that the outlook is less than rosy. It typically means that the dividends are higher than the cost of carry interest for the remainder of the contract.
The main reason an indexâs cash price can be higher than its futures price for the bulk of a trading day is that the fair value delta can be negative â i.e., a discount instead of a premium.
Futures price = cash price + fair value delta (where the delta can be negative)
Fair value delta = interest - dividends (where dividends can be greater than interest)
The interest is the carry cost for owning all the stocks from now until contract expiration. The appropriate short term rates from the yield curve are used, for example 3-month LIBOR. From the perspective of the futures contract holder, the interest is essentially gained because you donât have to borrow from your bank or broker to own all the securities.
The dividends are those that happen from now until contract expiration. From the perspective of the futures contract holder, the dividends are effectively lost because you own the futures contract instead of the securities.
The input values are adjusted proportionally for the remaining life of the 3-month contract.
I should let you guys know that I'm looking for talent with regard to "index arb"
Thus all the questions.
Thus all the questions.